January 9, 2015
10 Tips For Determining Your Company’s Real Value To Investors
6. Don’t Rely on Yourself to Determine Your Company’s Value
The marketplace of investors must determine startup value. That means meeting with enough potential investors to fully understand market signals. It may also mean deferring fundraising until the market shows enough interest for the price to be in line with expectations. Shows like ABC’s “Shark Tank” tend to corner the entrepreneur into accepting a non-market valuation for their company.
– Noah Glass, Olo
7. Use the Discounted Cash Flow Method
Project your financials for the next five years and use the discounted cash flow method. This system isn’t perfect, but it shows you’ve thought through your numbers and can back them up. It’s not as hard as it sounds either. An easy way to project earnings is to use a standard growth rate that has been proven or can be defended. You can use a DCF calculator online to back into your valuation.
– Robert De Los Santos, Sky High Party Rentals
8. Go Bottoms Up
Given the fact that it is a startup and more than likely has no cash flow, strategic partners or brand recognition, the best way to come up with a pre-money value is to assign a value ($0 – 1MM+) for each bucket: How experienced is the management team? Is there a cash flow? Is there a working version of the product? How large is the potential market? Do they have existing partnerships?
– Joseph DiTomaso, AllTheRooms
9. Ask Yourself What You Would Sell For
In a startup with little or no cash-flow, valuation is a subjective, psychological target. After modeling your financial projections, one trick is to figure out the valuation that you wouldn’t feel badly giving to your friends and loved ones, but that you would also feel good about. But when it comes down to it, you own the shares. What would you sell a piece of your opportunity for?
– Miles Jennings, Recruiter.com
10. Understand Multiple Methods
Understanding how multiple methods work helps ensure you can speak the same language as investors. This also lets you establish a range of valuations and may help you have realistic expectations.